The Efficiency of Being Inefficient: A Law & Economics Surprise

 We’ve all heard the complaints—and perhaps made them ourselves. Whether it's during a campaign season or a frustrating afternoon at a government office, the refrain is always the same: "Why can't the government just run like a business?"

We imagine a world where a leader could simply snap their fingers and make the "trains run on time." We crave the streamlined efficiency of a CEO who can pivot a company in a single afternoon. In our civic imagination, "checks and balances" often feel like nothing more than red tape and gridlock.

But what if I told you that the Founding Fathers were actually some of history’s most brilliant (if accidental) economists?

The Monopoly Problem In a traditional market, we loathe monopolies. Why? Because without competition, there is no incentive to improve quality or lower prices. A monopolist becomes unresponsive and self-centered. As it turns out, the same is true in politics. A political monopoly—an autocracy or a dictatorship—is "efficient" in the sense that it can act quickly, but it is devastatingly inefficient at reflecting the will of the people.

The Hidden Cost of Speed Here is the "Rest of the Story" surprise: The Constitution didn't just happen to be slow; it was designed to be inefficient. From a Law and Economics perspective, the separation of powers and federalism are intentional "transaction costs." By forcing the Legislative, Executive, and Judicial branches to coordinate—and by further fragmenting that power through specialized agencies and state governments—the system creates friction.

Why Friction is Your Friend In the private sector, "systemic risk" is what happens when one bad decision at the top crashes the whole company. In a government with a "CEO" who has unfettered power, one bad judgment call on a pandemic, a war, or the economy doesn't just lose money—it can end a civilization.

By "slowing down" the ability of the government to act, the system ensures that only policies with broad consensus—those that survive the friction of multiple branches—actually make it through.

So, the next time you're frustrated by the slow pace of policy change, remember: that inefficiency isn't a bug in the system. It’s the primary security feature. We aren't just suffering through gridlock; we are benefiting from a system that is too fragmented to fail all at once.

Want to dive deeper into the economic "board of directors" model of Congress? Watch my full lecture here:

Do you think the 'transaction costs' of our government have become too high for the modern era, or are they more necessary now than ever?